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ECO 2013 MACROECONOMICS, MDC G
Terms in this set (61)
What does macroeconomics study?
Long-run economic growth and short-run economic fluctuations
The dollar value of all goods and services produced within the borders of a country using their current prices during the year that they were produced
Problem with nominal GDP?
Because nominal GDP uses the prices in place in the year the output was produced, it can increase from one year to the next even if there is no increase in output
The state a person is in if he or she cannot get a job despite being willing to work and actively seeking work. The failure to use all available economic resources to produce desired goods and services; the failure of the economy to fully employ its labor force.
The accumulation of funds that results when people in an economy spend less (consume less) than their incomes during a given time period; savings are a stock.
In economics, spending for the production and accumulation of capital and additions to inventories. Different from a financial investment (stock, etc.)
In economics, spending for the production and accumulation of capital and additions to inventories.
Sudden, unexpected changes in demand.
Sudden, unexpected changes in aggregate supply.
Inflexible or "Sticky" Prices
Product prices that remain in place (at least for a while) even though supply or demand has changed; stuck prices or sticky prices.
Product prices that freely move upward or downward when product demand or supply changes.
An increase in ___ GDP guarantees that more goods and services are being produced by an economy.
True or False. The term economic investment includes purchasing stocks, bonds, and real estate
If an economy has sticky prices and demand unexpectedly increases, you would expect the economy's real GDP to
If an economy has fully flexible prices and demand unexpectedly increases, you would expect that the economy's real GDP would tend to
Remain the same
If the demand for a firm's output unexpectedly decreases, you would expect that its inventory would
Increase or remain the same, depending on whether prices are sticky
True or False. Because price stickiness only matters in the short run, economists are comfortable using just one macroeconomic model for all situations
Gross Domestic Product (GDP)
The total market value of all final goods and final services produced annually within the boundaries of a nation. It is also a monetary value.
To avoid counting components each time, GDP includes only the market value of ____ goods and ignores ____ goods altogether.
Secondhand sales contribute how much to current production and for that reason are excluded from GDP?
Nothing, to count towards GDP the product must be made within the current year and only bought from the original manufacturer.
The method that adds all expenditures made for final goods and final services to measure the gross domestic product.
Expenditures approach Equation
C + Ig + G + Xn
The method that adds all the income generated by the production of final goods and final services to measure the gross domestic product.
Income approach Equation
W + R + I + P + T
A GDP that has been deflated or inflated to reflect changes in the price level
An outward shift in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; an increase of real output (gross domestic product) or real output per capita.
How do economist measure economic growth?
As either (a) an increase in real GDP over time or (b) an increase in real GDP per capita over time.
Real GDP per capita
Inflation-adjusted output per person; real GDP/population.
Rule of 70
A method for determining the number of years it will take for some measure to double, given its annual percentage increase. Example: To determine the number of years it will take for the price level to double, divide 70 by the annual rate of inflation.
Modern economic growth
The historically recent phenomenon in which nations for the first time have experienced sustained increases in real GDP per capita.
How is modern economic growth characterized?
By sustained and ongoing increases in living standards that can cause dramatic increases in the standard of living within less than a single human lifetime
The four determinants of an economy's physical ability to achieve economic growth by increasing potential output and shifting out the production possibilities curve.
Determinants of Supply Factors
1. Increases in the quantity and quality of natural resources.
2. Increases in the quantity and quality of human resources.
3. Increases in the supply (or stock) of capital goods.
4. Improvements in technology.
Demand factor (in growth)
The requirement that aggregate demand increase as fast as potential output if economic growth is to proceed as quickly as possible. (fifth determinant of economic growth)
To reach its full production potential, an economy must achieve economic efficiency as well as full employment. (sixth determinant of economic growth)
Input of labor
A nation's real GDP in any year depends on the input of labor. Measured in hours of work multiplied by labor productivity (measured as real output per hour of work)
Who keeps track of growth accounting?
The president's Council of Economic Advisers
The knowledge and skills that make a person productive.
Recurring increases and decreases in the level of economic activity over periods of years; consists of peak, recession, trough, and expansion phases.
The point in a business cycle at which business activity has reached a temporary maximum; the point at which an expansion ends and a recession begins. At the peak, the economy is near or at full employment and the level of real output is at or very close to the economy's capacity.
A period of declining real GDP, accompanied by lower real income and higher unemployment.
The point in a business cycle at which business activity has reached a temporary minimum; the point at which a recession ends and an expansion (recovery) begins. At the trough, the economy experiences substantial unemployment and real GDP is less than potential output. (bottom part of the recession)
The phase of the business cycle in which real GDP, income, and employment rise. (usually after recession)
Persons 16 years of age and older who are not in institutions and who are employed or are unemployed and seeking work.
The percentage of the labor force unemployed at any time. Equation = (unemployment/labor force) x 100
Employees who have left the labor force because they have not been able to find employment. (do not count towards the labor force or unemployment rate)
A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.
Unemployment of workers whose skills are not demanded by employers, who lack sufficient skill to obtain employment, or who cannot easily move to locations where jobs are available.
A type of unemployment caused by insufficient total spending (insufficient aggregate demand) and which typically begins in the recession phase of the business cycle.
Full-employment rate of unemployment
The unemployment rate at which there is no cyclical unemployment of the labor force; equal to between 5 and 6 percent in the United States because some frictional and structural unemployment are unavoidable.
Natural rate of unemployment (NRU)
The full-employment rate of unemployment; the unemployment rate occurring when there is no cyclical unemployment and the economy is achieving its potential output; the unemployment rate at which actual inflation equals expected inflation.
The real output (GDP) an economy can produce when it fully employs its available resources.
Actual gross domestic product minus potential output; may be either a positive amount (a positive GDP gap) or a negative amount (a negative GDP gap).
A rise in the general level of prices in an economy; an increase in an economy's price level.
Consumer Price Index (CPI)
An index that measures the prices of a fixed "market basket" of some 300 goods and services bought by a "typical" consumer. The main measure of inflation
Increases in the price level (inflation) resulting from increases in aggregate demand.
Increases in the price level (inflation) resulting from an increase in resource costs (for example, raw-material prices) and hence in per-unit production costs; inflation caused by reductions in aggregate supply.
Per-unit production cost
The average cost of a particular level of output. This average cost is found by dividing the total cost of all resource inputs by the amount of output produced.
The number of dollars received by an individual or group for its resources during some period of time.
The amount of goods and services that can be purchased with nominal income during some period of time; nominal income adjusted for inflation.
A very rapid rise in the price level; an extremely high rate of inflation.
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